Husky bets big on north Canada oil drilling rights

By Jeffrey Jones

4 Min Read

<p>Banners for the Canadian company Husky Energy are seen at a sporting event in Lake Louise, Alberta December 1, 2009. Husky is one of Canada's largest energy companies based in Calgary.Andy Clark</p>

CALGARY, Alberta (Reuters) - Husky Energy Inc has opened its wallet to grab the lion's share of C$534 million ($556 million) of winning bids for oil-drilling rights in the central Mackenzie Valley area of Canada's far north, sparking speculation it may be chasing a rich prospect.

In the 2011 government auction of drilling rights in northern lands, Husky bid C$376 million for two parcels near Norman Wells in the Northwest Territories, vastly outspending some of the world's largest oil majors, the government announced on Monday.

"(Husky) really spent a lot of money relative to the peers on the play. Could they be targeting an oil-rich play? Potentially," Macquarie Capital Markets analyst Chris Feltin said. "Maybe they think they've keyed into a new play up in that region."

Among other winners, ConocoPhillips bid C$67 million for a parcel in the region. Royal Dutch Shell Plc and a partnership of Imperial Oil Ltd and Exxon Mobil Corp each picked up land with bids of C$43 million.

Junior northern explorer MGM Energy Corp scooped up three parcels with bids totaling C$5 million. The auction was held by the Oil and Gas Management Directorate arm of the federal government's Aboriginal Affairs and Northern Development ministry.

The dollar figures represent the amount of money the bidder intends to spend exploring on the parcel during the initial five-year period of a nine-year license.

Husky said little about its aims in the region, including whether it is indeed an emerging oil play.

"We know the area is prospective and we know, of course, that there is an existing petroleum system at Norman Wells, which is nearby," spokeswoman Colleen McConnell said. "So it's certainly an area of interest, but more than that we can't say at the moment."

Imperial, Exxon, ConocoPhillips and Shell are partners in the long-delayed Mackenzie Valley Gas pipeline, which would ship natural gas along the Mackenzie Valley from gas fields they discovered in the 1970s on the Beaufort Sea coast.

The C$16.2 billion pipeline project won the last of its major regulatory approvals earlier this year, but its construction is anything but assured as the partners rerun the numbers on its economic viability and seek a fiscal deal with Ottawa.

Meanwhile, communities in the sparsely populated Northwest Territories wait for the development of a natural gas industry and economic benefits that have so far proven elusive.

However, the central valley region is also known for oil prospects, and is served by the Norman Wells pipeline, which feeds into Enbridge Inc's export network.

Husky had signaled that it planned no activity on its existing Northwest Territories lands in 2011, Feltin said.

"This is a change in what they've indicated previously, so maybe there is something more than just a raw gas story going on here," he said.

The company will now evaluate the timing of exploration on the two new parcels, including the possibility of 3-D seismic work, McConnell said.

Shares in Husky, which is majority-owned by interests controlled by Hong Kong billionaire Li Ka-shing, were up 5 Canadian cents at C$26.35 on the Toronto Stock Exchange early on Tuesday afternoon.